When it comes to seeking debt relief, most consumers opt for one of three things: consolidation, settlement, or bankruptcy. Most individuals not only want to get out of debt to stop the collection calls and letters, but they want to improve their credit score as well. What about those three common debt relief options? How will they impact your credit score?
* Debt Settlement: This is when you owe less money when all is over with. Most times, you contact a debt relief program that handles settlements. They start negotiating with the credit card companies you owe money to. The goal is to get them to eliminate some of your debt. You might get away paying up to 60% less. Owing less does make it easier to get out of debt, but you did pay your bills in full. For that reason, settlements will show on your credit report. As for your credit score, it is usually negatively impacted for one to year years.
* Debt Consolidation: This is when you get a consolidated loan (all your debts are transferred to a new loan). You partner with a debt relief company that handles consolidations to do this. As for the impact on your credit score, you will find that it does vary. It depends on a number of factors. Those checking your credit report will see that some bills were paid off and that you now have a loan with their total out. They will likely know it was because of debt consolidation. The good new is that if you make on time payments to your consolidation company, your credit score shouldn't be impacted.
* Bankruptcy: This is when you basically get to walk away from your debts. Right now, I bet you are thinking "that sounds great." It does sound great, until you learn about those consequences. The biggest is the impact on your credit score. In terms of debt relief, filing for bankruptcy will have the biggest negative impact on your credit score. Most individuals not only find it difficult to get financing, but they get a low credit score for around seven years. This is a long time when you compare it to the above mentioned settlement or consolidation.
In short, you can go for settlement, consolidation, or bankruptcy. The choice is yours. However, before making that choice, you may want to use the services of a financial advisor to help you review all of your debt relief options. Most importantly, don't forget that the choice you do make is likely to impact your credit score.